CautiousInvestor

Distilling the Economic Data: No Recovery News

Steve, thanks for investing the time and effort to properly frame the meme of green shoots and improving second derivatives.

Your data is self explananatory and suggests that both mainstream media and the markets are too far ahead of the curve..........and too far ahead of the actual recovery. Before addressing this last point, let me share some material from Dennis Gartman by way of John Mauldin.

Dennis also looked at rail shipments: "Since the start of this year this year, when the year-on year comparison was a relatively tepid -8%, the trend has been steadily 'from the upper left to the lower right' on the charts. By March, the year-on-year comparisons were averaging -15%. By April, -22%; by May -25%; and now, after a week or two of June, they are -26%. This is not a trend to be tampered with; this is a trend of some very real severity, and for now we fear that it is a trend rather firmly intact. Thankfully, it looks back, not forward; but if the past is prologue to the future, the future still looks rather bleak.

"Finally, there is a glimmering of hope on the rail horizon, and that is that the June figures, as they are compiled, are showing some signs of life. According to the AAR, 'freight traffic on US railroads during the week ended June 13 continued to show signs of gradual improvement ... [as] rail car loadings and intermodal were up from the previous week with carloads at their highest level in 10 weeks.'"

I am happy to cede that things are getting less worse but would point out that this deceleration in deterioration does not say we have hit bottom or says very little about the recovery. Getting to the bottom is one issue; recovering and moving away from the bottom is another.

This allows me return to the point that we .......the markets and mainstream media........are getting too far ahead of ourselves. We know the market is a forward looking discounting mechanism but I believe what the market presently "sees" is something robust and V shaped; what I believe the future will deliver will be less robust and almost anemic.........the new normal.

Many developments will contribute to the new normal but, in the main, it will resuslt from a macroeconomic reset in which the consumer increases savings from virtually zero to 9% to 10% and reduces consumption. This will put a brake on the economy as will reductions in capex spending by firms that serve the consumer who will see excess capacity until population growth offsets contactions in spending patterns.

I think unemployment will remain a problem until this correction has run its course; I am somewhat fearful of additional fiscal efforts to circumvent this necessary, painful adjustment.